We are often told that using a credit card can ruin your credit. However, if you are just starting to build credit, using a credit card is the quickest way to build credit. It is important to learn how to manage your card so you do not ruin your credit score. Just follow these simple steps and you will soon have a credit record of your dreams.
Credit Score
Before applying for a credit card, check your credit. It is important to know that score when applying for credit cards. Credit card companies will determine how much credit they will give you based on your score. Certain cards are perfect for those who are trying to build credit.
It is important to keep your eye on your credit reports. Companies such as Discover offer both cardmembers and nonmembers free credit reports and other tools to help manage your credit. Look at your FICO score. You can translate your score this way:
- Exceptional: 800-850
- Very good: 740-799
- Good: 670-739
- Fair: 580-669
- Very poor: 300-579
- So, if your score is already in the exceptional range, finding a credit card to fit your need will not be difficult. However, if you are in the fair to the very poor range, it will take some research to find credit cards.
What Goes Into Your Score Anyway?
Several aspects go into determining your score. FICO breaks it down like this:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New credit: 10%
FICO looks at your credit in several ways. For example, for the amounts owed, FICO looks at the credit you owe such as car loans, student loans, credit balances because they judge them differently. They also look at how much credit you have overall and compare it to how much you are using. Though this may seem a bit confusing, this leaves lots of opportunities to improve your score.
A Secured Card May Be The Answer
If you have bad credit or no credit at all, a secured credit card may be the best solution. Just about anyone can get a secured card, however, there is a catch. Unlike with an unsecured, a secured card requires a deposit. The deposit can range from 200 dollars or more. The deposit is usually the same as the amount of credit that they give you. It is important to note, however, the interest rates are high. You use the secured card the same way as an unsecured card. As long as you make timely payments, your credit score will improve. Once you prove that you are responsible, the credit card company may offer to switch you to unsecured credit.
Do Not Go Crazy
It may be very attempting to apply to every credit card offer that comes in the mail. There is no hard and fast rule as to how many credit cards a person has too many cards can cause trouble. Not only does it get hard to manage them, but it is also too easy to overspend. The next thing you know is that you have accrued more debt than you can handle. This will harm your credit.
Pay On Time
There is nothing more important to your credit than making your credit card payments on time. Missing one payment can have a major impact on your credit. Missed credit card payments will stay as a negative mark on your credit record for seven years. On the flip side, making credit card payments on time will only improve your record. Set up autopay to prevent the chance of missing a payment. It will not take long to build the credit that you desire.